June 26: Despite the increase in investable capital in the banking system, the interbank interest rate has dropped to around 2.5 percent due to the lack of credit expansion.

The interbank interest rate, which started falling continuously since the beginning of June, was fixed at 2.65 percent on Friday.

The interbank interest rate, which was 5.74 percent last Wednesday, fell to 4.01 percent last Monday.

At the beginning of the current fiscal year, the interbank interest rate exceeded 8 percent. It dropped to 4 percent in January with an increase in liquidity. However, after the Nepal Rastra Bank mopped liquidity from the market through reverse repo, the interbank rate increased again and reached 8.5 percent in February. In recent times, the liquidity has eased again and bank deposits are increasing due to increase in remittances and government spending. Lack of credit flow is also responsible for the increase in liquidity. As there is more liquidity in the financial system, NRB mopped funds through reverse repo twice in a week.

In recent times, despite the increase in bank deposits, flow of loans is minimal due to which the interest rates of interbank, treasury, development bonds etc are decreasing.

As of Friday, the credit-deposit ratio (CD ratio) of banks remained at 83.97 percent. Since banks can maintain a CD ratio of up to 90 percent to extend loans, there is a situation where they can give more loans of about Rs 500 billion loans. However, there is no demand for loans due to the high interest rate and a decline in economic activities.

As of Friday, the total deposits of banks and financial institutions have reached Rs 5571 billion and disbursement of loans has reached Rs 4855 billion.

 As the liquidity becomes easier, the interest rate of the government's short-term bond treasury bills is gradually decreasing. Last Tuesday, the interest rate of Treasury Bills dropped to 4 percent.